Asked by Zarria Turner on May 26, 2024
Verified
As the interest rate increases, the present value of future sums decreases, so firms will find fewer investment projects profitable.
Present Value
The amount of money today that would be needed to produce a future amount of money, given prevailing interest rates.
Investment Projects
Initiatives undertaken by individuals, companies, or governments to allocate capital in order to generate returns or achieve strategic goals.
Interest Rate
The cost incurred by a borrower for the privilege of using funds, defined as a percentage of the principal value.
- Grasp the relationship between interest rates, present value, and future value.
Verified Answer
BP
Breanna PursellMay 31, 2024
Final Answer :
True
Explanation :
Higher interest rates increase the cost of borrowing and the discount rate used to calculate the present value of future cash flows, making fewer investment projects appear profitable due to lower present values.
Learning Objectives
- Grasp the relationship between interest rates, present value, and future value.